Mortgage Notes vs. Traditional Investing: The Why

[Michael Terry]

Good morning all, 

My wife and I have been discussing the idea of going into mortgage note investing for almost 18 months now with me doing the lion's share of the research. I am on board with the idea of passive income, generational wealth, and everything that comes with smart investing through real estate. She, however, is still on the fence. 

Investing in something like managed mutual funds gives you average returns of 7-8% annually, even during a pandemic or wartime. My question is, aside from finding assets with the same or higher returns, why did you choose to invest in mortgage notes or real estate over traditional forms of investing? Is it the monthly payment consistency? Is it avoiding market volatility? Is it to learn the business to build recurring wealth over time? 

Cheers.  

[Robert Hytha]

Hi Michael! While I wouldn’t recommend investing in mortgage notes if you don’t already own or plan on also owning a rental portfolio - notes are a great diversification to scale up cash-flow without the more management intensive responsibilities of owning hard assets. 

I think you should also own cash-flowing hard assets because while your mortgage note portfolio principal balance is paid down, the asset values (and rents) of your hard assets appreciate. A 30 year term on a re-performing note is a long time but will likely refinance early leaving you with more work to redeploy funds. 

So to answer your question, I invest in mortgage notes for outsized increases to the cash flow of my portfolio without the responsibility of more property management. And of course, the potential for diversification within notes is excellent since it is nearly location independent so we can work from home. 

Best of luck on your investing journey!!